GHANSHYAM SARDA Vs. M/S SHIV SHANKAR TRADING CO. & ORS

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 10221 of 2014, Judgment Date: Nov 13, 2014

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.10221 OF 2014 @

(SPECIAL LEAVE PETITION (C) NO.5249 OF 2014)

GHANSHYAM SARDA … APPELLANT

Versus

M/S SHIV SHANKAR

TRADING CO. & ORS. ….RESPONDENTS

WITH

CIVIL APPEAL NO.10222 OF 2014 @

(SPECIAL LEAVE PETITION (C) NO.5897 OF 2014)

GHANSHYAM SARDA … APPELLANT

Versus

M/S SHIV SHANKAR

TRADING CO. & ORS. … RESPONDENTS

CIVIL APPEAL NO.10223 OF 2014 @

(SPECIAL LEAVE PETITION (CIVIL) NO.8610 OF 2014)

JK JUTE MILL MAZDOOR

EKTA UNION … APPELLANT

Versus

M/S SHIV SHANKAR

TRADING CO. & ORS. … RESPONDENTS

CIVIL APPEAL NOS.10224-10225 OF 2014 @

(SPECIAL LEAVE PETITION (C) NOS.8611-8612 OF 2014)

JK JUTE MILL MAZDOOR

EKTA UNION … APPELLANT

Versus

M/S SHIV SHANKAR

TRADING CO. & ORS … RESPONDENTS

CIVIL APPEAL NO.10226 OF 2014 @

(SPECIAL LEAVE PETITION (CIVIL) NO.6412 OF 2014)

GHANSHYAM SARDA … APPELLANT

Versus

M/S JK JUTE MILLS

CO. LTD. & ANR. … RESPONDENTS

CONTEMPT PET. (C) NO.338 OF 2014 IN

(SPECIAL LEAVE PETITION (CIVIL) NO.5249 OF 2014)

GHANSHYAM SARDA …PETITIONER/

APPLICANT

Versus

SASHIKANT JHA, DIRECTOR M/S JK

JUTE MILLS CO. LTD. & ORS. … RESPONDENTS

AND

CONTEMPT PET. (C) NO.375 OF 2014 IN @

(SPECIAL LEAVE PETITION (CIVIL) NO.8610 OF 2014)

JK JUTE MILLS MAZDOOR …. PETITIONER/

EKTA UNION APPLICANT

Versus

SASHIKANT JHA, DIRECTOR M/S JK

JUTE MILLS CO. LTD. & ORS. … RESPONDENTS

J U D G M E N T

UDAY UMESH LALIT, J.

1. Permission to file SLP granted in SLP(C) Nos.8611-12/2014. Leave to

appeal granted in all Special Leave Petitions.

2. All these Special Leave Petitions arise out of a common judgment and

order dt. 06.01.2014 passed by the High Court of Gauhati in FAO No. 10 of

2013 and Writ Petition Nos. 4303 of 2013 and 6286 of 2013 and are being

disposed by this common judgment and order. These petitions raise questions

regarding scope and ambit of Sections 22(1), 26 and 32(1) of the Sick

Industrial Companies (Special Provisions) Act 1985, hereinafter referred to

as the Act.

3. A company named J.K. Jute Mill Company Ltd. (hereinafter referred to

as ‘the company’) having its registered office at Kanpur, Uttar Pradesh

filed Reference No. 149 of 1994 before the Board for Industrial and

Financial Reconstruction (“BIFR” for short) under the provisions of the

Act. Though the scheme was initially sanctioned for reconstruction, the

BIFR subsequently held the scheme to have failed and directed the company

to be wound up. These orders were stayed by the Appellate Authority for

Industrial and Financial Reconstruction (“AAIFR” for short) and further

proceedings before the BIFR continued. While the matter was thus pending,

“Sarda Group” took over the Company through Rainey Park Suppliers Private

Ltd. (RPSPL) in 2007. BIFR by its order dated 17.12.2008 approved such

take over of the management. The management of the company was handed

over to Shri Govind Sarda. It appears that in 2009, Shri Govind Sarda

assigned the debt held by RPSPL in favour of an entity named Libra Retailer

Pvt. Ltd. (LRPL) and he is stated to have handed over Jute Mill of the

company to a third party. As he failed to revive the company, show cause

notice for winding up was issued by the BIFR. This action was challenged

by the Company by filing Appeal No. 186 of 2009 before the AAIFR which

appeal is still pending.

4. At this stage, Shri Ghanshyam Sarda, (hereinafter referred to as the

present appellant) filed an application for impleading himself in the

proceedings which application was accepted by AAIFR. Upon this order being

challenged, the High Court of Delhi in W.P. No.2839 of 2010 held the

present appellant to be entitled to present his point of view in the form

of proposal/scheme, which order was confirmed by this Court by dismissing

Special Leave Petition filed at the instance of the Company. In terms of

the aforesaid orders the BIFR impleaded the present appellant who

thereafter submitted a proposal for revival of the company and also filed

MA No.162 of 2012 in the BIFR for restoration of shareholding pattern. On

18.02.2013 the BIFR issued directions to the operating agency to consider

the scheme of the present management and the scheme submitted by the

present Appellant and thereafter submit a fully tied up Draft Revival

Scheme (“DRS” for short). The BIFR fixed the next date for hearing of MA

162 of 2012 on 04.04.2013. In the proceedings dated 27.02.2013, it was

decided that the DRS be circulated seeking objections and suggestions from

all the concerned.

5. On 03.04.2013, two applications were filed before the BIFR by M/S

Shyam Jute Supplier, Chindwara M.P. and M/S Shiv Shankar Tranding Co. &

Ors, Gauhati Assam (hereinafter referred to as ‘SSTC’) signed by the same

person through same Counsel stating that they were unsecured creditors and

sought permission from the BIFR to institute Civil Suit for recovery of

money stated to be recoverable from the company. On 04.04.2013 the BIFR

held a hearing to consider the change in the share holding pattern of the

company without due permission from BIFR. At that stage Counsel appearing

for the Company submitted that Application No. 162 of 2012 could not be

considered as the BIFR no longer retained jurisdiction over the Company.

It was submitted that in the Audited Balance-Sheet for the period of nine

months i.e. 01.04.2012 to 31.12.2012 the net worth of the Company having

turned positive, the Company ought to be discharged from the BIFR. Learned

counsel appearing for Shyam Jute Supplier and SSTC supported such

submissions.

6. Paragraphs (4.1, 4.3, 4.4, 4.8, 4.12 and 4.13) of the proceedings

dated 04.04.2013 are quoted here under which are self eloquent.

“4.1. Today’s hearing (04.04.2013) was fixed for consideration of MA No.

162/BC/2012 filed by Shri Ghanshyam Sarda praying as under:

Declare that the change in shareholding pattern to the extent the same

reduces the shareholding of RPSPL from 86.23% to 5.34% without approval of

BIFR as null and void;

Restore the management and the shareholding pattern of JKJMCL as approved

by the learned BIFR vide its order dated 18.09.2008.

Initiate action under section 33 read with section 34 against the

management for changing the shareholding pattern of the sick company

without seeking permission from BIFR; and

Appoint a special director (BIFR Nominee) in the Board of the Company to

look into and monitor its affairs;

Pass such other further order(s) as this Hon’ble BIFR may deem fit and

proper in the facts and circumstances of the case;

4.3. Shri Sudhansu Batra, Sr. Advocate appearing on behalf of the Sick

Company intervened and stated the MA NO. 162/BC/2012 cannot be considered

today since BIFR no longer retains jurisdiction over the company. Shri

Batra, Sr. Advocate stated that the Balance sheet as on 31.12.2012 has been

audited which shows that the networth of the company has turned positive

and the company has to be discharged from BIFR. Upon a query from the

Bench, Shri Sudhansu Batra, Sr. Advocate stated that the company has

already filed a letter dated 25.03.2013 with the BIFR informing that the

networth of the company as on 31.12.2012 has turned positive. Upon a query

from the Bench, Shri Sudhansu Batra, Sr. Advocate stated that the financial

period of the company is normally for 12 months but this year the accounts

have been closed by auditing the balance sheet for 9 months period from

01.04.2012 to 31.12.2012. The Ld. Senior Advocate prayed that in view of

the networth turning positive the company should be discharged from the

BIFR. The Ld. Senior advocate argued that there are no provision under SICA

for deregistration of a reference when the net worth becomes positive and

the Sick Company is not required to make a formal application to the BIFR

for discharge when the company’s net worth becomes positive. The Ld.

Advocate further stated that the sickness of the company is to be decided

ex facie on the basis of the audited Balance Sheet and as the Audited

Balance Sheet as at 31.12.2012 is showing positive Networth, BIFR ceases to

have any jurisdiction. The Ld. Senior Advocate to support of this

submissions referred to and relied upon the judgment passed by Hon’ble

Delhi High Court in the case of: Cahtolic Syrian Bank V/s BIFR & Ors. On a

query from the bench that assuming the networth has turned positive whether

BIFR would automatically lose its jurisdiction or BIFR still has the powers

to examine the audited balance sheet and formally pass an order of

discharge, Shri Sudhansu Batra Sr. Advocate agreed and in fairness conceded

that before discharging the company, the BIFR can examine the audited

balance sheet as on 31.12.2012 by all means and methods and satisfy itself.

Shri Sudhansu Batra, Sr. Advocate stated that his clients is not required

to file an application seeking discharge and BIFR on its own may examine

the audited Balance Sheet and discharge the company from BIFR.

4.4. Shri Ashish Mohan, Advocate appearing for an unsecured creditor

stated that his clients have filed application seeking impleadment as well

as permission under section 22(1) of SICA to file recovery proceedings

against the management of the company; but in view of the networth of the

company turning positive the company may be discharged from BIFR so that

his clients may file recovery suit against the company. The learned

Advocate stated that since the networth of the Sick Company has turned

positive, he would not be pressing any of his application (s) and would

take legal recourse against the company in court of law.

4.8 The representatives of IDBI (OA) stated that they are not in a

position to comment upon the Audited Balance Sheet as on 31.12. 2012

without examining the same. The OA further stated that the ASC is going

ahead as per its schedule and the next meeting of the ASC is on 16.04.2013.

The Bench observed that the ASC may go ahead with its schedule and that ASC

should do nothing more at present except opening and evaluating the bids

and submit its report on such evaluation to the BIFR and that BIFR shall

take a final view upon the bids and the sale of assets at the time of

approval of DRS. The bench further observed that DRS has already been

circulated on 26.02.2013 and the objections & suggestions shall be

considered on 20.05.2013. Till such time either the Bench considers the DRS

or discharge the company from SICA; the Bench shall safeguard the assets of

the company and retain its jurisdiction over the company/its assets.

4.12. The Bench stated that they would consider the arguments of the

parties including the arguments of Mr. Aggarwal on the next date of

hearing. The Bench also observed that as per the Company’s ABS as on

31.03.2012, (12 months) the networth of the company is Rs. 5.71 crores and

the accumulated losses are Rs. 36.23 crores and it would like to satisfy

itself about the Balance Sheet as at 31.12.2012 to which Mr. Batra agreed

that the BIFR could undertake such an exercise. Since the issue of lack of

jurisdiction has been raised; the Bench would decide the said issue

alongwith MA No. 162/BC/2012.

4.13. Having considered the submissions made in the hearing, materials on

record, the Bench issued the following directions:

(i)The company to submit certified copy of its ABS as on 31.12.2012 along

with all relevant papers & documents in support of its networth within one

week from today with copy to the IDBI (OA) and all concerned parties

alongwith documentary evidence;

(ii) The ASC would go-ahead as per its schedule and confirmation of sell,

if any will take place upon approval of DRS on 20.05.2013, with the consent

of Bench.

(iii) The Bench fixed the next date of hearing on 26.04.2013 at 11.30 AM

for considering the submission of the Company that its networth has turned

positive as on 31.12.2012 and also hear the MA No. 162/BC/2012 on the said

date.”

7. At this stage some of the other proceedings need a mention. J.K.

Jute Mazdoor Sabha filed Writ Petition No. 22897 of 2013 before the

Allahabad High Court on 25.04.2013 challenging the BIFR’s order dated

04.04.2013. Said Writ Petition having been dismissed by a Single Judge, in

an appeal therefrom the Division Bench in its order dated 01.05.2013

observed that the BIFR would be in a better position to assess the net

worth position of the company. In the meantime, Shyam Jute Suppliers

approached the High Court of Madhya Pradesh by filing Writ Petition No.7534

of 2013 questioning the order dated 04.04.2013 of the BIFR. The petition

was dismissed by a Single Judge on the ground of lack of territorial

jurisdiction which order was approved in appeal by the Division Bench of

the High Court.

8. On 22.04.2013, SSTC filed Title Suit No. 166 of 2013 in Civil Court

at Kamroop, Gauhati against the Company adding BIFR as proforma defendant.

It was inter alia averred

“…. Now it appears from the balance sheet of the defendant company filed

before the proforma defendant that its net worth had become positive. In

view of the said admission on the part of the defendant No. 2 it is no

longer a sick establishment under the Sick Industrial Companies (Special

Provisions) Act, 1985 and consequently the proforma defendant No. 2 has

ceased to have jurisdiction over the defendant No. 1 and as such the

defendant No. 1 is no longer entitled to any benefit under the Sick

Industrial Companies (Special Provisions) Act, 1985. Thus the defendant No.

1 under the aforesaid facts and circumstances has become liable to be sued

in a Civil Court of competent jurisdiction with effect from the date the

2012 balance sheet as submitted by it before the proforma defendant No. 2

and the proforma defendant ceased to have any jurisdiction whatsoever.”

The plaintiff prayed for declaration, inter alia, that the company

was no longer a sick company within the meaning of the Act and that the

BIFR ceased to have jurisdiction over the company and all the proceedings

in BIFR after filing of positive balance-sheet be declared without

jurisdiction. The Civil Court by its order dated 23.04.2014 while issuing

notices to the defendants directed that status-quo be maintained in respect

of the BIFR case till the next date of hearing.

9. The company filed its written objections on 13.05.2013. Though the

claim of the plaintiff and its entitlement to recover the sum stated to be

due was denied, the company accepted that it was no longer a sick company.

The relevant averments were to the following effect.

“……. That the answering opposite party humbly states that the statements

made in paragraph number 1 of Misc. (J) Case No. 254/13 are to the extent

that the opposite party is no longer a sick establishment is not denied.”

“ …. That the answering opposite party admits the statement made in

paragraph number 10 and admit that on and from the financial year 2012-2013

it is no longer a sick company. The balance sheet is also admitted. The

rest of the statements regard jurisdiction is a matter of fact and law and

the opposite party has no comment to offer.”

10. The matter came up before the Civil Court on 13.05.2013. It noted

the aforementioned stand and in view of such admitted position held that

the BIFR ceased to have any jurisdiction over the defendant company. It was

observed:-

“…. But a question that is still required to be answered at this juncture

is as to whether this Court has the jurisdiction to grant the relief of

temporary injunction as sought for in the instant case. Section 26 of the

SICA, which provides inter alia that no injunction shall be granted by any

court or other authority in respect of any action taken or to be taken in

pursuance of any power conferred by or under this Act, shall not be

applicable to the opposite party no. 1 company any more as it is no more a

sick industrial company admittedly and the provisions of the SICA are not

applicable to it anymore, and, therefore, the civil court will definitely

have jurisdiction over it. Hence, this Court has jurisdiction to grant the

relief as sought for in the instant case….”

In the premises, the Civil Court restrained the defendants including

the BIFR from proceeding with BIFR case no. 149 of 1994. Neither the

Plaintiff nor the Company at any stage placed on record before the Civil

Court the proceedings dated 04.04.2013 of the BIFR nor was the Civil Court

appraised of the fact that the Plaintiff had sought leave under Section 22

(1) of the Act from the BIFR to file the Civil Suit.

11. In the meantime while dealing with appeals preferred against the

orders of the BIFR including one dated 27.02.2013, the AAIFR was appraised

that the issue of Net worth was under consideration of the BIFR, so vide

its order dt.16.05.2013 it preferred to await such decision. In the

subsequent proceedings of the same day i.e. 16.05.2013 the aforesaid order

of the Civil Court was placed before the BIFR which observed that it had

not given any permission under Section 22 (1) of the Act to SSTC to file

any recovery suit against the company and the matter was adjourned in the

presence of the counsel concerned for considering the submission of the

parties on the issue of net worth as on 31.12.2012. It was further

observed that in the absence of permission under Section 22 (1) the suit

filed by SSTC was not competent and that, the company had not yet been de-

registered from BIFR and a filing of Civil Suit without taking permission

was violative of the Act. Taking note of the order of the AAIFR dated

16.05.2013 and the order passed by the High Court of Allahabad dated

01.05.2013, it was observed that it had to decide the issue whether the net

worth of the company had turned positive or not. The BIFR thus directed

the parties to file their written submission on the aspect of the net worth

of the company as on 31.12.2012.

12. On 30.05.2013, the present appellant filed an application for

impleadment as defendant in the aforesaid Suit. Adverting to the orders

passed by the BIFR and AAIFR impleading him in the proceedings before the

BIFR and the subsequent orders passed by the Division Bench of the High

Court of Delhi and this Court on his impleadment and the fact that he had

submitted a proposal for revival, the present appellant prayed that he be

impleaded in said suit as a defendant. The present appellant thereafter

filed FAO No.10 of 2013 before Gauhati High Court challenging the Civil

Court’s order dated 13.05.2013. A learned Single Judge after preliminary

hearing by his order dated 14.06.2013 admitted the appeal for hearing and

also passed interim order to the effect that no third party rights in

respect of the property of the respondents/defendants be created during the

pendency of the appeal.

13. In the meantime, the matter appeared before the BIFR on

01.07.2013. It prima facie was of the view that the Audited Balance-Sheet

as on 31.12.2012 of the company did not reflect true and fair view and that

the matter required examination as to how the net worth of the company, all

of a sudden, turned positive. It was observed that SSTC was not granted

any permission by the BIFR under Section 22 (1) of the Act and the suit of

SSTC was not competent, that SSTC had suppressed the fact from the Civil

Court and that the order passed by the Civil Court being without

jurisdiction was a nullity in the eyes of law and not binding upon the

BIFR. It was further observed that the BIFR had to satisfy itself whether

the net worth had turned positive due to some positive development and not

merely by manipulation of the accounts. In the premises it directed the

State Bank of India to appoint independent auditor for Special

Investigative Audit and to file its report about net worth position of the

company as on 31.12.2012.

14. SSTC who was the original plaintiff in the aforesaid Suit filed Writ

Petition No. 4303 of 2013 in Gauhati High Court challenging the orders

dated 16.05.2013 and 01.07.2013 of the BIFR. Said Writ Petition came up

before the Single Judge who by his order dated 01.08.2013 impleaded the

present appellant as Respondent No. 3 in the Writ Petition and further

directed that till the next date of hearing further proceedings in BIFR

case No. 149 of 2014 shall remain stayed. Subsequently, the matter

appeared before the Single Judge again who, on 14.08.2013 directed that the

matter be placed before Hon’ble the Chief Justice for directions whether

the Writ Petition could be heard along with FAO No.10 of 2013.

15. On 04.09.2013, State Bank of India as directed by the BIFR submitted

the Report of the Special Investigative Audit pointing out the manipulation

in the balance-sheet submitted by the company and that the net worth of the

company as on 31.12.2012 was in fact on the negative side by Rs.36 crores

in nine months. In the proceedings before the BIFR dated 05.09.2013, the

aforesaid Report was taken on record and comments from the parties were

invited.

16. Immediately the company filed Writ Petition No.4286 of 2013 before

Gauhati High Court questioning the order dated 05.09.2013 of the BIFR. The

matter came up before a Single Judge on 30.09.2013 who issued rule in the

Writ Petition and by way of interim order directed that further proceedings

in BIFR case No.194 of 1994 shall remain stayed. This order was vacated by

Division Bench of the High Court in Writ Appeals vide its order dated

14.11.2013. These three matters namely FAO No.10 of 2013 and Writ Petition

Nos.4303 and 6286 of 2013 were thereafter clubbed and posted before the

Single Judge on 21.11.2013, who adjourned the matters to 04.12.2013 and

observed that since the Court was in seisin of the matter it was expected

that the BIFR may not proceed further with the case till conclusion of the

hearing before the learned Single Judge. In deference to the aforesaid

order dated 21.11.2013, the BIFR adjourned the case.

17. These three matters then came up before the High Court which

observed that FAO No.10 of 2013 was filed by the present appellant who was

not yet a party before the Civil Court and that said FAO which was filed

without seeking appropriate leave of the Appellate Court was not

maintainable and as such it was not necessary to enter upon deliberations

on merits of the matter. The High Court was of the view that since the

application for impleadment was still pending before the Civil Court, as

and when the present appellant was impleaded as defendant in the suit, it

would then be open to him to file such application for variation or setting

aside of the order of injunction. It was held that in the absence of any

challenge, the order of injunction was still in operation and that until

and unless such order was vacated and recalled by appropriate judicial

forum, the same had to be respected and given effect to. The High Court

also disposed of Writ Petitions on the ground that since all the

proceedings before BIFR stood stayed, further proceeding in BIFR would be

of no legal consequence. It was further observed that one of the members

of BIFR having recused himself from hearing the case on the earlier

occasions as noted in the order dated 31.01.2013, of the BIFR, said member

ought not to have participated in any further proceedings.

18. This common order passed by the High Court has given rise to six

Special Leave Petitions, three by present appellant namely SLP No. 5249,

5897 and 6412 challenging the order of the High Court in respect of FAO

No.10 of 2013, Writ Petition No.4303 of 2013 and Writ Petition No.6286 of

2013 respectively. The other three petitions are by J.K. Jute Mill Mazdur

Ekta Unions being Special Leave Petition Nos. 8610, 8611 and 8612 of 2014

against the aforesaid order in respect of three proceedings as stated above

respectively. This Court issued notice in the matter on 24.03.2014 on which

date the company had appeared on caveat. By order dated 08.05.2014, it was

directed that till further orders the capital assets of the Company shall

not be disposed of without taking permission of this court. Soon thereafter

Civil Contempt Petition Nos.338 and 375 of 2014 were filed by the present

appellant and J.K. Jute Mills Mazdoor Union contending inter alia that in

violation of order dated 08.05.2014, the contemnors in the petition had

caused certain properties of the Company to be transferred. During the

pendency of these matters SSTC assigned in favour of M/s Goodlife Merchants

Pvt. Ltd. all the rights in respect of the debt of the Company.

19. All the aforesaid matters were taken up for hearing together by this

Court. Appearing for the present appellant, Mr. Kapil Sibal, learned

Senior Counsel submitted that the Act is a complete code in itself and

given the true scope and purport of Sections 22 , 26 and 32 of the Act, the

jurisdiction of the BIFR over any company in question would continue till

its formal discharge by BIFR either after the net worth of the company

turned positive by successful implementation of the scheme or by the order

of winding up passed in respect of such company. It was further submitted

that the BIFR alone will have competence and jurisdiction to declare a

company which was once a sick company, to be no longer sick and discharge

it from the purview of the Act and that the Civil Court will not have

jurisdiction or competence to decide these questions. It was further

submitted that the Civil Court is not the appropriate forum and lacks

jurisdiction to examine the correctness of the annual accounts and conclude

whether the company in question was no longer amenable to be dealt with

under the Act. In support of his submissions, reliance was placed on the

decisions of this Court in Managing Director Bhoruka Textiles Limited Vs.

Kashmiri Rice Industries[1] and Raheja Universal Limited Vs. NRC Limited &

Ors.[2] Appearing for J.K. Jute Mill Mazdur Ekta Union, Shri Krishnan

Venugopal and Shri R.P. Bhatt, learned Senior Counsel adopted the

submissions of Shri Sibal. Shri Venugopal, learned Senior Counsel also

invited the attention of this Court to the report of the State Bank of

India to show how the net worth of the company was still on the negative

side. Shri Kapil Sibal and Shri Sanjeev Sen, learned Senior counsel also

invited the attention of the Court and submitted that the alleged

contemnors in aforementioned Contempt Petitions had flagrantly violated

orders of this Court.

20. Shri Guru Krishna Kumar, learned Senior Counsel appearing for

SSTC original plaintiff and the transfree M/s Goodlife Merchants Pvt. Ltd.

in all the matters submitted that since the audited balance-sheet as on

31.12.2012 showed the net worth of the company on positive side, the

company was out of the purview of the provisions of the Act and it was

competent for the company to claim itself to be no longer amenable to the

jurisdiction of the BIFR. It was submitted that it was open to assert,

upon the net worth being positive, that the company ipso facto was no

longer amenable to the jurisdiction of the BIFR. In support, reliance was

placed on the view taken by the High Courts of Calcutta[3], Madras[4] and

Delhi[5]. Dr. A.M. Singhvi and Shri Harin Rawal, learned Senior Counsel

appearing for the company submitted inter alia that while the matters were

pending before this Court, the Trial Court by its order dated 29.08.2014

had allowed the application for impleadment filed by present appellant in

Title Suit No.166 of 2013 and that it was now open to the present appellant

to go before the Trial Court and ask for variation and modification of the

order of injunction passed by it. It was submitted that BIFR which is a

Tribunal with limited jurisdiction could not have disobeyed the order of

the Civil Court. Relying on the views taken by the High Courts of

Calcutta, Madras and Delhi in the aforestated cases it was submitted that

there was no provision in the Act under which BIFR could pass an order

discharging a company under the Act and as such the matter could lie in the

domain of the Civil Court. Shri C.U. Singh, learned Senior Counsel

appearing for LRPL, one of the secured creditors, adopted the submissions

and further submitted that various proceedings before the BIFR actually

showed that the members of the BIFR were biased against the Company.

21. Before we deal with the legal issues involved in the matter certain

factual facets of the matter need clarification and assessment. During the

course of submissions, it was submitted that the Counsel appearing for the

company had never agreed before the BIFR on 04.04.2013 that the BIFR could

examine the audited balance sheet itself to satisfy whether the net worth

of the company had turned positive or not. In support, reliance was placed

on letter dated 18.04.2013 stated to have been written on behalf of the

company to the Secretary Bench 3, BIFR, copy of which letter was also

placed on record. Said letter purportedly stated that the recording of

such submission was wrong and that the learned counsel had never submitted

that before discharging the company the BIFR could examine the audited

balance sheet and satisfy itself. Be it noted that the letter was not

written by the learned counsel nor any affidavit was sworn by the learned

counsel denying such factum. Furthermore, in none of the subsequent

proceedings after 04.04.2013, as per the record of the BIFR, any argument

disputing or denying such submission appears to have been made, nor is

there any reference in the subsequent proceedings to the letter dated

18.04.2013. In the circumstances we deem it appropriate to proceed on the

basis that the submission was in fact made by the learned counsel and it

was so rightly recorded by the BIFR in its proceedings dated 04.04.2013.

Secondly, it has been accepted by the company that property at Saif

Ganj, Katihar belonging to the company has in fact been sold. At this

stage, it may be useful to quote from the written submissions filed on

behalf of the company and the relevant portion reads as under:

“A sale deed of the Kathihar property was executed on 2.4.2013 for Rs.3.55

crores in favour of Thapar Herbs & spices Ltd. and the sale consideration

was received on 4.4.2013. On 16.4.2013, the constructive possession was

handed over and registration fee of Rs.35.00 lacs was paid by the

Purchaser. As per the Revenue Department, the stamp duty was higher than

affixed and the matter was pending adjudication and thereafter, final

registration was done on 16.4.2014. Under the Bihar local stamp laws,

since over a year had lapsed, a fresh sale deed was presented. The

difference of registration fee was paid by the purchaser on 16.6.2014. On

2.7.2014, the sale deed was presented which act of presentation was only

ministerial.”

This would mean that even before the hearing of the matter before the

BIFR on 04.04.2013 the property was sold. The record does not indicate

anywhere that the factum of such sale was ever brought to the notice of the

BIFR on 04.04.2013 or thereafter nor was it disclosed that the Rs.3.55

crores were received by way of consideration. Furthermore, when this Court

issued notice on 24.03.2014 when the company had appeared on caveat and

subsequently passed interim order on 08.05.2014, nothing was disclosed to

this Court that the property had been sold.

22. We may also at this stage deal with submission regarding effect of

order dated 29.08.2014 of the Civil Court impleading the present appellant

as defendant. Confining itself to the question of competence of the

present appellant to file the appeal without leave of the court, the High

Court had not dealt with legal issues, namely what shall be the effect of

sections 22, 26 and 32 of the Act insofar as the present controversy is

concerned. It was therefore submitted on behalf of the company that since

the appellant now stands impleaded, he be left to pursue appropriate

remedies before the Trial Court. We are not persuaded to agree with this

submission to relegate the matter to the Trial Court and we proceed to deal

with the legal issues involved in the matter inasmuch as the matter raises

basic issues concerning jurisdiction of the Civil Court itself. The

learned Counsel appearing for the Original Plaintiff as well as the company

have also advanced submissions on the legal issues in question and we

therefore deem it appropriate to deal with such issues.

23. At this juncture the question regarding maintainability of the appeal

before the High Court needs to be dealt with. As the facts indicate, FAO

was admitted after hearing the respondents. Neither at that stage nor at

any subsequent stage anything was filed by way of formal opposition to the

filing of such appeal without the leave of the Court. Further the status

of the present appellant to present his point of view in the form of

proposal or scheme before the BIFR was accepted right up to this Court and

he had thereafter been represented before the BIFR. The proceedings dated

04.04.2013 also indicate that the BIFR was in seisin of MA NO.162 of 2012

preferred by him. He was also impleaded as respondent in the writ

petitions which were dealt with along with the said FAO. The present

appellant was thus not a stranger to the controversy. There is nothing in

Order XLIII Rule 1 of the Code of Civil Procedure that leave to appeal has

to be applied for in any particular format. In the circumstances, the High

Court was not justified in dismissing the appeal on a technical ground and

it ought to have considered the merits of the matter. We hold the appeal

preferred by the present appellant to be maintainable and proceed to

consider the basic issues involved in the matter.

24. Sections 22(1), 26 and 32(1) of the Act, the ambit and scope of which

fall for our consideration are quoted hereunder:

22. Suspension of legal proceedings, contracts, etc.—

Where in respect of an industrial company, an inquiry under Section 16

is pending or any scheme referred to under section 17 is under preparation

or consideration or a sanctioned scheme is under implementation or where an

appeal under section 25 relating to an industrial company is pending, then,

notwithstanding anything contained in the Companies Act, 1956 (1 of 1956),

or any other law or the memorandum and articles of association of the

industrial company or nay other instrument having effect under the said Act

or other law, no proceedings for the winding up of the industrial company

or for execution, distress or the like against any of the properties of the

industrial company or for the appointment of a receiver in respect thereof

and no suit for the recovery of money or for the enforcement of any

security against the industrial company or of any guarantee in respect of

any loans or advance granted to the industrial company shall lie or be

proceeded with further, except with the consent of the Board or, as the

case may be, the Appellate Authority.

26. Bar of Jurisdiction—No order passed or proposal made under this

Act shall be appealable except as provided therein and no civil court shall

have jurisdiction in respect of any matter which the Appellate Authority or

the Board is empowered by, or under, this Act to determine and no

injunction shall be granted by any court or other authority in respect of

any action taken or to be taken in pursuance of any power conferred by or

under this Act.

32.Effect of the Act on other laws.—(1) The provisions of this Act and of

any rules or schemes made thereunder shall have effect notwithstanding

anything inconsistent therewith contained in any other law except the

provisons of the Foregin Exchange Regulation Act, 1973 (46 of 1973) and the

Urban Land (Ceiling and Regulation ) Act, 1976 (33of 1976) for the time

being in force or in the Memorandum or Articles of Association of an

industrial company or in any other instrument having effect by virtue of

any law other than this Act.

25. Chapter III of the Act details out various stages at which inquiry

into the working and status of sick industrial companies and the scheme for

revival is undertaken. Upon a reference to the Board or upon information

received with respect to financial conditions of any industrial company,

the Board is empowered under Section 16 to conduct such inquiry as it may

deem fit for determining whether such company has become a sick industrial

company. After being so satisfied, the measures which could be taken up to

enable the company to make its net worth exceed the accumulated losses that

is to say to make it positive are postulated in Section 17. Under Section

17(1) the Board may by order in writing allow an industrial company to

revive itself, if it is practicable so to do within a reasonable time. If

it is not so practicable, it may direct any operating agency to prepare a

scheme for the revival of such company. In other words, once the reference

is registered, it is the BIFR which supervises the aspects leading to the

revival of such company. Subsequent sections deal with the preparation and

sanction of scheme for revival of such company and empower the Board to

have dominion over such company to enable the revival of that Company and

in cases where such revival is not possible, to recommend the winding up of

such company. It is clear that after a reference is registered by the

Board, all throughout the subsequent stages, the BIFR has complete

supervisory control over the affairs of such company till it is revived or

the decision to wind up such company is taken. In our view, the ambit and

extent of such control means and includes determination of such measures to

achieve revival of the sick company and to check whether by such measures

the revival is being achieved or not. This must cover the power to decide

at any stage subsequent to the registration of reference under Section 16

whether such company has ceased to be sick company or not. Cessation of

the status as a sick company can be under Section 17(1) or as a result of

scheme for revival being implemented and determination of such issue, in

our view, is in the exclusive domain of the BIFR.

26. In Raheja Universal Limited Vs. NRC Limited2, it was observed

in para 48 thus:

“Chapter III, in fact, is the soul and essence of SICA 1985 and it provides

for the methodology that is to be adopted for the purpose of detecting,

reviving or even winding up a sick industrial company. Provisions under

SICA 1985 also provide for an appeal against the orders of BIFR before

another specialized body i.e. AAIFR. To put it simply, this is a self-

contained code and because of the non obstnace provisions, contained

therein,it has an overriding effect over the other laws. As per Section 32

of SICA 1985, the Act is required to be enforced with all its vigour and in

precedence to other laws.”

The Act is a self-contained Code and has conferred upon the BIFR

complete supervisory control over a sick industrial company to adopt such

methodology as provided in Chapter III for detecting, reviving or winding

up such sick company. The authority to determine the existence and extent

of sickness of such company and to adopt methodology for its revival are,

in the exclusive domain of the BIFR and by virtue of Section 26 there is an

express exclusion of the jurisdiction of the Civil Court in that behalf.

27. As laid down by this Court the Act is a complete Code in itself. The

Act gives complete supervisory control to the BIFR over the affairs of a

sick Industrial Company from the stage of registration of reference and

questions concerning status of sickness of such company are in the

exclusive domain of the BIFR. Any submission or assertion by anyone

including the Company that by certain developments the Company has revived

itself and/or that its net worth since the stage of registration having

become positive no such scheme for revival needs to be undertaken, must be

and can only be dealt with by the BIFR. Any such assertion or claim has to

be made before the BIFR and only upon the satisfaction of the BIFR that a

sick company is no longer sick, that such company could be said to have

ceased to be amenable to its supervisory control under the Act. The

aspects of revival of such company being completely within its exclusive

domain, it is the BIFR alone, which can determine the issue whether such

company now stands revived or not. The jurisdiction of the civil court in

respect of these matters stands completely excluded.

28. Unlike cases where the existence of jurisdictional fact or facts, on

the basis of which alone a Tribunal can invoke and exercise jurisdiction,

is or are doubted, stand on a different footing from the one where

invocation and exercise of jurisdiction at the initial stage is not

disputed but what is projected is that by subsequent or supervening

circumstances the concerned Tribunal has lost jurisdiction. In the present

case the fact that the company was registered as a sick company is not

doubted nor has it been contended that the BIFR had wrongly assumed initial

jurisdiction. But what is projected is that the net worth having become

positive the BIFR has now lost jurisdiction over the company. In our view,

the BIFR having correctly assumed jurisdiction and when all the financial

affairs of such company were directly under the supervisory control of the

BIFR, the power to decide whether it has since then lost the jurisdiction

or not, is also in the exclusive domain of the BIFR. The BIFR alone is

empowered to determine whether net worth has become positive as a result of

which it would cease to have such jurisdiction. Any inquiry into such

issue regarding net worth by anyone outside the Act including civil court,

would be against the express intent of the Act and would lead to

incongruous and undesired results. The suit as framed seeking declaration

that the company was no longer a sick company within the meaning of the

Act, was therefore not competent and maintainable. The Civil Court was not

right and justified in issuing injunction as it did. The counsel who

represented the company before the BIFR on 04.04.2013, correctly submitted

that before discharging the company the BIFR can examine the audited

balance sheet and satisfy itself whether the net worth had turned positive.

29. Insofar as the recovery of money is concerned, the matter is

completely covered by Section 22(1) of the Act. The language employed in

Section 22(1) of the Act refers to the entirety of the period beginning

from the inquiry under Section 16 till the implementation of sanctioned

scheme for revival. Section 22(1) bars any suit for recovery of money or

for the enforcement of any security against the industrial company without

the express consent of the Board. Reference in Section 22(1) is to “an

Industrial Company” and not to “the sick Industrial Company” as found in

later sub-sections of the same Section. This also throws light that the

bar is during the period contemplated in said Section 22(1). Such bar is

period specific and sub-section (5) of Section 22 entitles exclusion of

such period while computing limitation. During the entirety of that period

the Act grants protection to the company and leaves it to the discretion of

the BIFR whether to permit filing and maintaining of suit or other

proceedings. In the present case the BIFR was considering Draft

Rehabilitation Scheme which is a stage under Section 18(3) and is

completely covered by the period under Section 22 of the Act. The suit in

the instant case as framed for recovery of money filed without the consent

of the BIFR was not competent and maintainable. We may at this stage refer

to the decisions rendered by this Court with regard to Section 22(1) of the

Act. In Managing Director, Bhoruka Textiles Limited Vs. Kashmiri Rice

Industries1, after quoting sub-section (1) of Section 22 of the Act, it was

observed:-

“A plain reading of the aforementioned provision would clearly go to show

that a suit is barred when an enquiry under Section 16 is pending. It is

also not in dispute that prior to institution of the suit, the respondent

did not obtain consent of the Board.

9. the provision of the Act and, in particular, Chapter III thereof,

provides for a complete code. The Board has a wide power in terms of the

provisions of the Act, although it is not a court. Sub-section (4) of

Section 20 as also Section 32 of the Act provides for non obstante caluses.

It envisages speedy disposal of the enquiry and preferably within the time

framed provided for thereafter. Section 17 empowers the court to make

suitable orders on the completion of enquiry. Preparation and sanction of

the scheme is also contemplated under the Act.”

In para 12 of the said decision, it was further stated:

“If the civil court’s jurisdiction was ousted in terms of the provisions of

Section 22 of the Act, any judgment rendered by it would be coram non

judice. It is a well settled principle of law that a judgment and decree

passed by a court or tribunal lacking inherent jurisdiction would be a

nullity.”

Similarly, in Raheja Universal Limited Vs. NRC Limited2 it was observed as

under:

“49. BIFR has been vested with wide powers and, being an expert body, is

required to perform duties and functions of wide-ranged nature. If one

looks into the legislative intent in relation to a sick industrial company,

it is obvious that BIFR has to first make an effort to provide an

opportunity to the sick industrial company to make its net worth exceed the

accumulated losses within a reasonable time, failing which BIFR has to

formulate a scheme for revival of the company, even by providing financial

assistance in cases wherein BIFR in its wisdom deems it necessary and

finally only when both these options fail and the public interest so

requires, BIFR may recommend winding up of the sick industrial company. So

long as the scheme is under consideration before BIFR or it is being

implemented after being sanctioned and is made operational from a given

date, it is the legislative intent that such scheme should not be

interjected by any other judicial process or frustrated by the impediments

created by third parties and even by the management of the sick industrial

company, in relation to the assets of the company.”

The suit in the instant case, insofar as it relates to the claim for

recovery of money, could lie or be proceeded with only after express

consent of the BIFR.

30. We now deal with the decisions of the High Courts of Calcutta, Madras

and Delhi. All these decisions were rendered while considering writ

petitions under Article 226 of the Constitution of India. In the first of

these three cases the High Court took the view that there is no express

provision in the Act which indicates when the BIFR loses its jurisdiction

with regard to a company which was once sick and proceeded to declare the

company in question not amenable to the jurisdiction of the BIFR from and

with effect from the date the Balance Sheet showed the Net Worth to be

positive. In the second case the High Court was of the view that sickness

of an industrial company is to be decided ex-facie on the basis of the

audited balance sheet and when the Net Worth becomes positive the BIFR

ceases to have any jurisdiction. The last case arose from the same BIFR

matter and Delhi High Court followed the view taken by Madras High Court.

Said decisions must now be read in the light of the above discussion and

view that we have taken.

31. In the circumstances, we allow the present appeals and set aside the

order dated 06.01.2014 passed by the High Court of Gauhati in FAO No.10 of

2013 and Writ Petition Nos.4303 of 2013 and 6286 of 2013. It is held that

the Title Suit No.166 of 2013 pending on the file of the learned Civil

Court at Kamroop, Gauhati is not maintainable insofar as it seeks

declaration that the company was no longer a sick company within the

meaning of the Act and that the BIFR ceased to have jurisdiction over the

company and that all the proceedings in the BIFR after filing of the

positive balance-sheet were without jurisdiction. Consequently the order

of injunction passed by the Civil Court is set aside. Insofar as the said

Suit pertains to the claim for recovery of money from the Company, the Suit

could lie and be proceeded with only after express consent of the BIFR is

received by the plaintiff. We direct that the company i.e., J.K. Jute

Mills Company Ltd. having its registered office at Kanpur U.P. continues to

be under the jurisdiction of the BIFR. We leave it to the BIFR to satisfy

itself and determine the issues whether the net worth of the company has

turned positive or not. If the BIFR is so satisfied, it shall de-register

the company and upon such declaration the company will be out of the

supervisory jurisdiction of the BIFR under the Act. Needless to say that

if the BIFR is not satisfied that the net worth of the company has turned

positive, it shall go ahead and consider the scheme for revival of the

company. We direct the BIFR to complete this exercise within two months

from date of receipt of this order. We have refrained from dealing with

the matter concerning the merits or de-merits of the claim that the net

worth has turned positive nor have we dealt with the report made by the

State Bank of India in its Special Investigative Audit. We leave these

issues to be considered by the BIFR at an appropriate stage. We have also

not dealt with the submissions alleging bias as the matters in that behalf

are still pending consideration before the authorities and we leave these

issues to be dealt with at an appropriate stage.

32. Since in our view the company continues to be a sick company and it

was not competent for anyone except the BIFR to determine whether the net

worth of the company had turned positive, we hold the sale of Katihar

property effected by the company without express leave or permission of the

BIFR to be questionable. However, since the transferee of that property is

not before this Court we relegate this matter for appropriate assessment by

the BIFR after issuing due notice to the transferee. We also leave it to

the BIFR to consider and assess whether there was any necessity or

expediency to sell the property in question. If in its opinion such

expediency and necessity are established, the BIFR may also consider

whether the value that the property has fetched is adequate or not. If the

value is adequate it may confirm the sale in favour of the transferee.

However, if the value in its opinion is inadequate, it shall give offer and

adequate time to the transferee to make good the deficit. In any case if

the sale is held to be bad or if the transferee is not willing to make good

the deficit, the entire consideration for the transaction be returned to

the transferee. In such eventuality whatever the transferee has paid in

excess of the consideration money towards stamp duty and registration shall

be recovered from the Directors and persons responsible for effecting such

sale on behalf of the company.

33. Now we turn to the filing of the civil suit in the instant case and

its conduct. The original plaintiff had sought consent of the BIFR under

Section 22(1) of the Act and was before the BIFR on 04.04.2013. However,

he did not disclose either the factum that he had so sought such consent or

that the BIFR was in seisin of the matter and considering whether the net

worth of the company had turned positive. Non-disclosure of these two

essential facts, in our view, was not accidental. We therefore impose costs

of Rs.5 lacs on the original plaintiff which shall be deposited within

three months from the date of this order, failing which action in contempt

shall be initiated against the original plaintiff. The costs shall be

deposited to the account of the Supreme Court Legal Services Authority.

Though the conduct of the company as defendant before the Civil Court was

of the same order, since it is a sick company we refrain from imposing any

costs on the company. No other order as to costs.

34. The appeals are allowed in the aforesaid terms. FAO No.10 of 2013

thus stands allowed and Writ Petition Nos.4303 of 2013 and 6286 of 2013 are

dismissed. As regards Contempt Petition Nos.338 and 375 of 2014, since

this Court had not issued any notice to the alleged contemnors, we have not

dealt with said petitions. By a separate order we issue appropriate notice

to the alleged contemnors.

……………………….J.

(Anil R. Dave)

………………………J.

(Uday Umesh Lalit)

New Delhi,

November 13, 2014

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[1] 2009(7) SCC 521

[2] 2012 (2) SCC 148

[3] 3. Dated 08.08.1995 in Zuari Agro Chemicals Ltd. & Anr Vs. The

Industrial Credit and Investment Corporation of India & Ors. in Matter

No.362 of 1995 (OS).

[4] 4. Dated 19.12.2007 in Dunlop India Ltd. Vs. Container Corporation of

India Ltd. & Anr. in Writ Petition No.24422 of 2006.

[5] 5. Dated 21.10.2009 in Catholic Syrian Bank Vs. BIFR & Ors. in W.P.

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